News flash: “Economy of Nigeria to Grow by 40 Percent. On December 10th!”
The news is not technically wrong. Nigerian officials are revising their calculation of gross domestic product, or GDP, to reflect changes in the economy over the past two-and-a-half decades. They will deemphasize sectors that have diminished in importance, and increase the weight of new sectors that have emerged. That is expected to boost GDP by approximately 40 percent.
The U.S. did the same thing earlier this year, yielding an increase of 3.6 percent to GDP. Nigeria’s larger increase is due partly to the fact that it hasn’t revised the formula for calculating GDP since 1990, and that large parts of the economy remain underground, untaxed, and unregulated. Ghana’s GDP increased by 60 percent when it revised its calculations in 2010.
One of the sectors that will boost Nigeria’s new GDP figure substantially is Nollywood, the Nigerian Hollywood, which produces movies, TV shows and music that are exported across Africa. The fast-growing telecommunications sector will also help Nigeria catch up to South Africa, its biggest economic rival and currently the Sub-Saharan African country with the largest GDP ($385 billion, compared to Nigeria’s expected $382 billion, when the new figure is released on December 10).
Meanwhile, Nigeria’s farming and textile sectors will be downgraded in the new GDP weighting. Reasons for this include urbanization, and intense competition from textile-producing nations in Asia, such as China and India.
Hossein Askari, a business and international affairs professor at George Washington University, says GDP ranking doesn’t make much difference to foreign investors or global brands looking to expand into developing markets. They’re more focused on infrastructure, corporate governance, and rule of law.
“Nigeria is one of the most corrupt countries in the world,” says Askari, “there are internal conflicts, and there is a very large degree of poverty.” Askari says he’s studied the economic impact of energy development in many countries, including Nigeria. “And if I had to mention one country where the people have not benefited from the oil wealth -- the least of any oil exporter -- this would be Nigeria.”
South Africa, meanwhile, has a bigger middle class, better legal institutions, and a more transparent financial system than Nigeria, says Amadou Sy, a senior fellow at the Brookings Institution’s African Growth Initiative.
Sy points out that even if Nigeria is about to catch up with South Africa in total GDP, the distribution of that wealth and growth is much more equal in South Africa. He estimates GDP per-capita in Nigeria will be $2,700 after its upcoming revisions. In South Africa, he estimates the figure at $8,700.
“South Africa remains very important, especially for the Southern Cone of Africa,” says Sy. “But it’s also good to have another champion in the Western region of the continent.”